Sprint agrees to $20B merger, says extra cash will boost LTE rollout

Japan's SoftBank to buy 70% stake in Sprint, hopes to close deal by mid-2013.

Sprint Nextel today agreed to a merger with SoftBank of Japan which will give Softbank a majority stake in the US carrier in exchange for $20.1 billion. $12.1 billion of that will be distributed to Sprint stockholders, and the other $8 billion will be used "to enhance [Sprint's] mobile network and strengthen its balance sheet," according to the announcement.

SoftBank is the third-largest mobile carrier in Japan, just as Sprint is third-largest in the US behind Verizon Wireless and AT&T. SoftBank will receive a 70 percent stake in Sprint while Sprint shareholders will own the other 30 percent.

Sprint said the acquisition will allow it to improve operating scale and rely on SoftBank's experience in deploying LTE services as Sprint continues rolling out 4G in the US. "SoftBank’s cash contribution, deep expertise in the deployment of next-generation wireless networks, and track record of success in taking share in mature markets from larger telecommunications competitors are expected to create a stronger, more competitive New Sprint that will deliver significant benefits to US consumers," Sprint said. SoftBank's subsidiary in the US will be named "New Sprint," but Sprint headquarters will still be located in Overland Park, Kansas.

The boards of both companies approved the deal. After going through the regulatory process, they expect to close the merger in mid-2013. The announcement said Sprint will not be required to make any changes to its partnership with Clearwire.

It's a busy time for consolidation in the cellular industry. T-Mobile, which itself was nearly acquired by AT&T in a deal scuttled by antitrust concerns last year, agreed to merge with MetroPCS earlier this month.

The merger makes little sense, especially considering the debt Softbank is taking on to make this happen. Softbank is touting all of these synergies, yet over the past 10 years we haven't even seen T-mobile ever be able to capitalize on these supposed efficiencies (considering that DT has over 100M mobile subs in its other markets).

The market's not even buying it, S is currently trading at $~5.75 and Softbank is offering $7.30/share...

I don't understand policy here in the U.S. It makes no sense to me to allow any form of national infrastructure/resources, from roads, to oil wells, to telecoms and utilities, to be owned by a foreign entity. Seems like bad national policy. The people that live on the land should be the ones extracting rent from. Let foreigners own natural resources is how you go down the road of most of Africa, where massive wealth is extracted and produced, but none of the people there benefit.

I don't understand policy here in the U.S. It makes no sense to me to allow any form of national infrastructure/resources, from roads, to oil wells, to telecoms and utilities, to be owned by a foreign entity. Seems like bad national policy. The people that live on the land should be the ones extracting rent from. Let foreigners own natural resources is how you go down the road of most of Africa, where massive wealth is extracted and produced, but none of the people there benefit.

Sprint is a public company, which means for all you know, it could already be 100% owned by "foreigners".

(And T-Mobile is German, Verizon is 45% British owned, with the US 55% holding owned by a public company, so that could also be foreign owned, and AT&T is public, so that could also be owned by foreigners).

So yeah, bad national policy to have the opportunity for foreigners to own things. Better nationalise everything and/or refuse to allow foreigners to invest in US companies.

And the problems in Africa generally aren't due to foreigners investing in or owning things, generally it's due to corruption and governments letting the systems be abused so they can personally gain. It has nothing to do with foreign investment.In fact, foreign investment is absolutely beneficial and often totally necessary, as the countries themselves lack the expertise to exploit their own resources. When done correctly, the foreign investment is massively beneficial in general, but typically it's NOT done correctly, due to government issues, which is why the population at large typically doesn't seem much benefit.

You could also talk about Venezuela, where they nationalised all the oil production, and then they spent all the money on the people and spread the wealth resulting in new facilities etc, and lots of socialist spending. But that was done horribly inefficiently by the government because they didn't feel a need to be particularly sensible. While the population may have benefited a bit, at the end of the day it was not the optimum result.And they nationalised private interests in order to get the oil production in the first place, so they had foreign investment set everything up, then took it over. So it's not exactly the nation doing everything itself.

Kazakhstan courted foreign investment in order to exploit its natural resources, because it lacked the ability to do so effectively itself.

Well done Sprint, well done Hesse. This is how you stop the bleeding and make a company an attractive acquisition target. Cancel the crappy initiatives, get on the right technology track for mid-term gains, pick up the iPhone — all in the shadow of terminal prognoses from the analysts — and then go home with a nice sugar momma to pay all the bills.

The merger makes little sense, especially considering the debt Softbank is taking on to make this happen. Softbank is touting all of these synergies, yet over the past 10 years we haven't even seen T-mobile ever be able to capitalize on these supposed efficiencies (considering that DT has over 100M mobile subs in its other markets).

The market's not even buying it, S is currently trading at $~5.75 and Softbank is offering $7.30/share...

When my company got purchased by a private company, they had to offer 30% over current market to buy up the stocks.

My guess is it is normal for a "buy out" to pay over current market value.

The merger makes little sense, especially considering the debt Softbank is taking on to make this happen. Softbank is touting all of these synergies, yet over the past 10 years we haven't even seen T-mobile ever be able to capitalize on these supposed efficiencies (considering that DT has over 100M mobile subs in its other markets).

The market's not even buying it, S is currently trading at $~5.75 and Softbank is offering $7.30/share...

Softbank probably believes that (a) they can operate Sprint profitably; and (b) that this will increase their bargaining power with handset manufacturers, which will benefit them in their home market as well.

I think it is a risky bet to finance the whole thing. 12 Billion paid for Sprint stock and 70-30 split of stock in the new company. That is serious leverage considering Sprint already has 15 Billion in debt and Softbank has 10 Billion. Financing 45 Billion is something serious and will hamper options if there are any bumps. And considering the last 15 quarters Sprint has lost money seems a hard stretch. Good if it works, but still very risky. The good news is there is likely not to be too much disruptions in the phone business as consolidation seems to be the game and likely the last chance for someone to enter the market.

I would think more merger and less debt would have been a win. This debt makes it dicey, so I would expect Softbank's shares to be hit hard because it is such a gamble.

I think it is a risky bet to finance the whole thing. 12 Billion paid for Sprint stock and 70-30 split of stock in the new company. That is serious leverage considering Sprint already has 15 Billion in debt and Softbank has 10 Billion. Financing 45 Billion is something serious and will hamper options if there are any bumps. And considering the last 15 quarters Sprint has lost money seems a hard stretch. Good if it works, but still very risky. The good news is there is likely not to be too much disruptions in the phone business as consolidation seems to be the game and likely the last chance for someone to enter the market.

I would think more merger and less debt would have been a win. This debt makes it dicey, so I would expect Softbank's shares to be hit hard because it is such a gamble.

They already have been hit. If I was a Softbank shareholder i'd be pretty pissed.

This smells of a merger move and shuffling of some money if you ask me. If it does improve the overall quality of service for Sprint, then I'm all for it, but I highly doubt it, cause money is what move things in the business world...

I don't understand policy here in the U.S. It makes no sense to me to allow any form of national infrastructure/resources, from roads, to oil wells, to telecoms and utilities, to be owned by a foreign entity. Seems like bad national policy. The people that live on the land should be the ones extracting rent from. Let foreigners own natural resources is how you go down the road of most of Africa, where massive wealth is extracted and produced, but none of the people there benefit.

I think it is a risky bet to finance the whole thing. 12 Billion paid for Sprint stock and 70-30 split of stock in the new company. That is serious leverage considering Sprint already has 15 Billion in debt and Softbank has 10 Billion. Financing 45 Billion is something serious and will hamper options if there are any bumps. And considering the last 15 quarters Sprint has lost money seems a hard stretch. Good if it works, but still very risky. The good news is there is likely not to be too much disruptions in the phone business as consolidation seems to be the game and likely the last chance for someone to enter the market.

I would think more merger and less debt would have been a win. This debt makes it dicey, so I would expect Softbank's shares to be hit hard because it is such a gamble.

I don't understand policy here in the U.S. It makes no sense to me to allow any form of national infrastructure/resources, from roads, to oil wells, to telecoms and utilities, to be owned by a foreign entity. Seems like bad national policy. The people that live on the land should be the ones extracting rent from. Let foreigners own natural resources is how you go down the road of most of Africa, where massive wealth is extracted and produced, but none of the people there benefit.

You sound racist. I hate to break it to you, but the Japanese continually push telecommunication technology and accessibilities while the carriers here in the US only care about "market consolidation" and "bottom line". Perhaps things would've been different had we NATIONALIZED the industry like we did with telephone.

I think it is a risky bet to finance the whole thing. 12 Billion paid for Sprint stock and 70-30 split of stock in the new company. That is serious leverage considering Sprint already has 15 Billion in debt and Softbank has 10 Billion. Financing 45 Billion is something serious and will hamper options if there are any bumps. And considering the last 15 quarters Sprint has lost money seems a hard stretch. Good if it works, but still very risky. The good news is there is likely not to be too much disruptions in the phone business as consolidation seems to be the game and likely the last chance for someone to enter the market.

I would think more merger and less debt would have been a win. This debt makes it dicey, so I would expect Softbank's shares to be hit hard because it is such a gamble.

Did you forget the exchange rate favors the Yen atm? They're getting a steep discount if you do the math.

I think it is a risky bet to finance the whole thing. 12 Billion paid for Sprint stock and 70-30 split of stock in the new company. That is serious leverage considering Sprint already has 15 Billion in debt and Softbank has 10 Billion. Financing 45 Billion is something serious and will hamper options if there are any bumps. And considering the last 15 quarters Sprint has lost money seems a hard stretch. Good if it works, but still very risky. The good news is there is likely not to be too much disruptions in the phone business as consolidation seems to be the game and likely the last chance for someone to enter the market.

I would think more merger and less debt would have been a win. This debt makes it dicey, so I would expect Softbank's shares to be hit hard because it is such a gamble.

Did you forget the exchange rate favors the Yen atm? They're getting a steep discount if you do the math.

It's been around 79 yen since May, a brief 2 month spike up to 82, and before that 77. So no it's not. And what does even that mean to you? Steep discount really?

I think it is a risky bet to finance the whole thing. 12 Billion paid for Sprint stock and 70-30 split of stock in the new company. That is serious leverage considering Sprint already has 15 Billion in debt and Softbank has 10 Billion. Financing 45 Billion is something serious and will hamper options if there are any bumps. And considering the last 15 quarters Sprint has lost money seems a hard stretch. Good if it works, but still very risky. The good news is there is likely not to be too much disruptions in the phone business as consolidation seems to be the game and likely the last chance for someone to enter the market.

I would think more merger and less debt would have been a win. This debt makes it dicey, so I would expect Softbank's shares to be hit hard because it is such a gamble.

Did you forget the exchange rate favors the Yen atm? They're getting a steep discount if you do the math.

It's been around 79 yen since May, a brief 2 month spike up to 82, and before that 77. So no it's not. And what does even that mean to you? Steep discount really?

Seen from inside the country, 80 against the dollar is said to be hurting exports tremendously. Recently we have seen interventions from the central bank to try to support bleeding japanese companies that rely on foreign trade. So I don't think it is a stretch to say that your quoted rates are quite a discount seen with japanese eyes.

On another note, the only reason Softbank is succesful is because they carried the iPhone when no one else would. Japanese carriers are notorious for wanting to put all kinds of crap in the devices they sell, why they were not at all interested in letting Apple get their way. Only reason they have softened lately is because the consumer has voted with their wallets. Softbank has awful 3G coverage, to the extent that most of the tech literate crowd here avoided the iPhone because they did not want to go with Softbank.

Seen from inside the country, 80 against the dollar is said to be hurting exports tremendously. Recently we have seen interventions from the central bank to try to support bleeding japanese companies that rely on foreign trade. So I don't think it is a stretch to say that your quoted rates are quite a discount seen with japanese eyes.

On another note, the only reason Softbank is succesful is because they carried the iPhone when no one else would. Japanese carriers are notorious for wanting to put all kinds of crap in the devices they sell, why they were not at all interested in letting Apple get their way. Only reason they have softened lately is because the consumer has voted with their wallets. Softbank has awful 3G coverage, to the extent that most of the tech literate crowd here avoided the iPhone because they did not want to go with Softbank.

Their commericals, however, are very good.

I agree with your statement totally. I am a Softbank user, and there are times their service is horrendous. I can be standing next to someone who is also with Softbank and they will have signal, and I will not. One can only hope that Sprint maintains it current business model and not follows Softbank's. (Automatic renewal of contracts without notification, high cancellation fees even when not on a contract, spam text messages from the company that you pay to recieve with no opt. out, etc..) It is my understanding that this is normal. The only reason I went with Softbank when I moved here was because of the iPhone. (Silly me!!) And yes, their commercials are awesome.

I think there are obvious concerns with foreigners controlling infrastructure, but the Japanese and Europeans are friends and as reliable as they come. Contrast that with the treatment of ZTE and Huawei lately, and it's not like our politicians are completely asleep and ignorant. On that issue, at least. Open markets are the best, in theory, in practice, like free speech and public places, you need reasonable limits.

No one suggests that you nationalize wireless like Chavez in Venezuela, that's usually pretty stupid and something we have rarely, if ever done. At the height of American socialism in the 50s thru 70s, even AT&T got regulated instead of nationalized.

Highways are usually publicly funded and regulated and as a direct result we've had the best automobile infrastructure for decades (affordable, complete, reaching rural areas, spurring economic development, mostly well mantained). Sadly, we haven't worked so hard to build out our wireless infrastructure, relying on the 'competition' of regional broadband and wireless monopolies to decide when rural areas should be included in the 21st century. Our prosperity wasn't built with foreign investment (not that there's anything wrong with it) or with capitalist 'competition', it was built with gov't subsidies for railroads, gov't money for building bridges and highways, with free public highways, not huge infrastructure bills for citizens and businesses and overage fees. Our economy worked when it was built in the public interest, not for the richest people controlling the largest companies. If our highways had been run this way, the US would never have had an amazing post-war economy built on the automobile (which was high tech at the time) and education. Small businesses need affordable infrastructure. Private citizens need affordable infrastructure. Our current system isn't delivering for everyone, it's just driving profits for a few lucky dogs at the expense of the entire economy.